Buying into the dream

Buying into the dream

Shares of MannKind (NASDAQ:MNKD) have been rising recently as investors buy into the dream that patients and physicians will prefer a non-injectable form of insulin. As regular subscribers to Diabetic Investor know in an email alert last week we put an AVOID rating on the stock. Given the recent run up in its share price some may be wondering if Diabetic Investor still stands by our AVOID rating. The answer is a resounding YES! Here’s why.

First and foremost it’s important to understand that we believe that afersa™ (this will be the trade name for the Technosphere® Insulin System.) will most likely be approved by the FDA. We further believe that afersa is the best inhaled insulin product and will find a place in the marketplace.

The problem isn’t with the drug, the problem lies with who will sell and market the drug. Given that Pfizer (NYSE:PFE) with all their resources couldn’t make Exubera work and Lilly (NYSE:LLY) and Novo Nordisk (NYSE:NVO) have abandoned their inhaled insulin products, one has to wonder how little MannKind can succeed where these giants have failed.

Some will point out that MannKind will most likely partner with a major player who will market and sell afersa. While that is a possibility the question is who and will that really help. While Pfizer has an agreement with MannKind to switch the handful of patients who are using Exubera over to MannKind this miniscule group of patients is hardly enough to produce any significant revenues for MannKind. When approved afersa will be up against other short-acting insulin’s from giants Novo Nordisk, Lilly and Sanofi-Aventis (NYSE:SNY). It’s doubtful any of these companies will partner with MannKind as they would kill the goose that lays the golden egg.

MannKind also faces competition from Byetta from Amylin (NASDAQ:AMLN). Although Byetta is under a cloud due to the news on pancreatitis, Novo also has a GLP-1 awaiting approval at the FDA, Amylin has the long-acting once-a-week version of Byetta warming up in the bullpen, Roche has a long-acting GLP-1 and several other companies have GLP-1’s in their pipelines. Diabetic Investor believes that GLP-1 therapy is a greater threat to insulin sales as patients on GLP-1 therapy do not need to monitor their glucose levels on a regular basis and there is little threat of hypoglycemia. This is in addition to solid control and the added benefit of weight loss.

Although the issue of pancreatitis is hanging over all GLP-1’s Diabetic Investor believes this issue will fall by the wayside as more evidence is made public. There’s no question that the pancreatitis issue has hurt Byetta however Diabetic Investor does not believe the FDA will put a Black Box warning on it either. The fact is the FDA stumbled badly with how they handled the Byetta situation as all available evidence shows Byetta to be safe and effective.

Even without the competition from GLP-1 therapy afersa has a tough road ahead. Besides competing with well established short-acting insulin’s that are deeply entrenched in the market, afersa has the added burden of overcoming the negative perceptions of inhaled insulin leftover from the Exubera disaster. On top of all this MannKind must overcome the built in problems with insulin therapy.  As we pointed out on numerous occasions moving a patient to insulin therapy requires greater patient education and carries with it the threat of hypoglycemia. Removing the needle only takes away the fear of injections and does nothing to counter the education and hypoglycemia issues.

Diabetic Investor further believes it’s unlikely that existing insulin patients would switch to afersa just because it’s inhaled rather than injected. The fact is once a patient has made the move to insulin therapy they learn that injections aren’t all that painful and it’s actually more painful to regularly monitor their glucose levels.

Finally there’s the issue of cost. Will MannKind price afersa comparable to injectable insulin or demand a premium due to the fact that it’s inhaled?

Diabetic Investor is not against inhaled insulin in any way. There is a need for alternate insulin delivery systems. However, we cannot ignore the realities of the marketplace. Realities which tell us that no matter how good afersa may be it still has several high hurdles to overcome.

The reality here is that many investors still believe in the dream that just because the insulin is inhaled it will be a blockbuster product. One would think these investors would have learned something from the multi-billion dollar Exubera disaster. As the old saying goes; Fool me once shame on you, fool me twice shame on me.